Unlocking Future Home-Price Gains

Tom Glassano is one creative techie. He also happens to have a touch of the Midas, so it wouldn’t hurt to bet alongside him.In the mid-1990s, the high-tech entrepreneur created one of the earliest Internet banking application businesses, which he eventually sold to PeopleSoft Inc. Glassano may have been unemployed, but his inventive mind was still at work.

In 2000, he launched a new company to automate business payments for big organizations including what he says was the largest settlement network for global businesses. In 2007, JPMorgan Chase snapped up that enterprise and Glassano was out of work once again.When I ran into Glassano earlier this year, he had recently joined a Pleasanton, Calif., start-up called SmartZip. His new titles were president and chief executive.

“I kicked around for a couple of years after the JPMorgan Chase deal looking for a new business,” he told me. “I was more interested in something that had more of a business-to-consumer application than business-to-business, where I previously spent most of my time.”

The other factor in his employment decision-making was to join a company that would benefit from the current economic climate rather than be hindered by it. SmartZip fit the bill.

SmartZip was incubated by another Pleasanton firm, NorthPoint Financial Group, and then spun off as an independent company earlier this year. In June, it launched the public beta Web site, www.smartzip.com.

“I was doing some work with a venture capitalist and I met up with NorthPoint, which was in the process of raising money for SmartZip,” says Glassano. “Ultimately, in order to get properly financed, it needed to be an independent, software-focused business, and once that occurred I joined.”

SmartZip was attractive to Glassano for the same reason I became interested in it when he told me about the new venture: It would create analytics-based investment ratings for single-family real estate.

Basically, SmartZip would use proven stock and bond ratings analytics to create a very comprehensive base of real estate investment attributes, and on a 1-100 scale it would offer investors and homebuyers an easy way to assess whether a property was worth buying.

In short, properties would be rated two ways: a “growth” score for risk-tolerant investors seeking above-average appreciation and an “income” score for risk-averse investors looking for consistent monthly cash flow.

Think of it this way. Thirty years ago, if you wanted to invest in stocks or bonds, you might have called upon your Uncle Harry, who was a stockbroker, and you would rely on his expertise. Now, however, you can just go online, find a company like Morningstar, and figure out from its ratings and reviews what stocks seem like a good investment.

The single-family real estate industry is much like the stock industry was 30 years ago. If you live in Indianapolis and wanted to by a home in Oakland, Calif., you might call your Uncle Barry, who is a Realtor there, and ask him to find something for you to buy.

Realtors are generally knowledgeable and reliable sources of information, but only for a specific local. If you wanted to buy an investment property in the San Francisco Bay Area, your Uncle Barry might know the Oakland market extremely well but would have little knowledge of Pleasanton, Cupertino, Mountain View or even San Francisco proper.

“My sense is,” says Glassano, “the real estate market has the potential to be a bigger area of investment as an asset class than it currently is, but the transparency of the information, analytics and the understanding of returns (or potential for returns) has not been approached like it has in other asset classes.”

Again, if you were interested in stocks and were looking for a company where the share prices had the potential to rise significantly in the years ahead, you could easily get the information from any number of brokerage and independent analytical sources. For example, if you popped onto the Morningstar Web site, you might see something like this: “PetSmart is well positioned to capture a greater share of spending on pets.”

Wouldn’t it be great if you wanted to buy that Bay Area property and could find research saying this particular home has the potential to see price improvement in the years ahead based on neighborhood stability, high income of nearby homeowners, and schools with a good reputation for delivering solid education.

That’s what SmartZip promises.

“We look at factors and fundamentals that contribute to a property’s ability to perform,” says Glassano. “We can run regression tests and find those variables that tend to correlate with the sustaining of values: supply of new housing, population growth, job growth, and such trends as education and safety. From a statistical analysis, we can sort out what are the factors that are most influential in having predictive power.”

In its beta-testing phase, SmartZip is only covering the California and Florida markets, but once it works out the kinks, probably in the first quarter of 2010, it will go national.

Steve Hoffman, a real estate investor who lives in Pleasanton, has picked up properties in such diverse cities as Atlanta, Raleigh, Portland and Austin, and has been helping to do the beta-testing.

“The SmartZip site has started to mature with more tools and features,” says Hoffman. “I’m quite amazed with it. There are lot of sites you can go to for finding homes and property values, but SmartZip is really cool because as an investor it allows you to find geographic markets that have investment potential and then be able to drill down. Once you do that you can start doing your own comparisons and analysis based upon what your objectives are as a real estate investor.”

Steve Bergsman is a freelance writer in Arizona and author of several books, including “After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade.” Copyright 2009 Inman News